Angry Shareholders Think Denny's Is No Grand Slam -- And They're Right
One of Denny's (DENN) biggest shareholder groups has had enough of the family restaurant chain's long decline in sales, market share and stock value, and are now angling to replace existing management at the big chain. They've got a point.
Tuesday, Oak Street Capital Management and Dash Acquisitions -- which together own 6.5 percent of Denny's -- announced their plan to elect three new directors to Denny's board. Their contention: Management has let the chain flounder while archrival IHOP lured their customers away.
In recent years, Denny's has seemed stuck in neutral, opening few new units while IHOP -- owned by Dine Equity (DIN) -- continued to grow market share. Denny's same-store sales were down 6 percent last year, and the company's own outlook is it'll continue to shrink in 2010. The chain has lost one of every five customers it was serving just five years ago, says the investor group. Net income grew a bit recently, but only due to cost cuts.
Corporate revenue is shrinking in part because Denny's is steadily selling off company-owned restaurants to franchisees at what the investors' lengthy letter to shareholders describes as "fire sale prices." The company's third-quarter report shows Denny's reaped $14 million on the sale of 59 Denny's restaurants to franchisees.
That's just $237,000 a unit. There's a rule of thumb in restaurant that you can't build a decent-sized, sit-down restaurant these days for less than $750,000 to $1 million, so the investors have a point here as well.
Interestingly, there may be someone working behind the scenes in this coup attempt who could actually help turn the chain around. On the blog Restaurant Reality Check, Peter Romeo notes that Dash Acquisitions' Jonathan Dash also serves "as advisor to the chairman and CEO of Steak 'n Shake." That CEO would be would-be restaurant empire-builder Sardar Biglari, who's seen rapid success in his efforts to improve performance at Steak 'n Shake. Turnaround initiatives there include introducing new menu items, revamping restaurants, opening new units and driving costs down -- all efforts that would help Denny's.
Clearly, something needs to happen to renew this tired, 57-year-old brand. Investors could be well-served by getting Biglari's crew into the driver's seat. In any case, expect a sizzling annual meeting for Denny's managers on May 20.
Photo via Flickr user speakerchase